GVEA: Financial cost of interconnecting Delta Wind Farm

Alaska's Golden Valley Electric Co-Op denies a proposal by DWF to connect a new 13.5 megawatt ("MW") wind facility arguing, among other things, that the cost of interconnection would be higher than the benefits of the project.A letter with supporting evidence was submitted to the Regulatory Commission of Alaska. A portion of the letter appears below. The full document can be accessed by clicking the links on this page. 

Regulatory Commission of Alaska
Tariff and Filing Section
701 West Eighth Avenue, Suite 300
Anchorage, Alaska 99501
March 15, 2017

Re: GVEA's TA296-13 Filing in Compliance with 3 MC 50.790 and Order U-17-009(2).

Dear Commissioners:

Golden Valley Electric Association, Inc. ("GVEA"), received a written request for interconnection from Delta Wind Farm, Inc. (DWF), on December 1, 2016. DWF is the owner of a proposed facility claiming qualifying facility ("QF") rights under 3 MC 50.750 - 3 MC 50.820. Specifically, DWF is proposing to construct a new 13.5 megawatt ("MW") wind generation facility in Delta Junction, Alaska (DWF's Project). On February 13, 2017, GVEA requested that its 60-day filing obligation under 3 MC 50.790(a) to file "a tariff for interconnection, integration, purchases, and sales" with DWF be extended by 30 days for good cause. On March 13, 2017, the Regulatory Commission of Alaska ("Commission") issued Order U-17-009(2) granting GVEA's request and establishing March 15, 2017, as GVEA's new filing deadline. GVEA hereby submits its required filing in compliance with 3 MC 50.790(a) and Order U-17-009(2).


2. GVEA Is Not Obligated to Purchase Power from DWF Because Such Purchases Would Increase GVEA's Costs.

GVEA encourages and supports renewable energy. To date, GVEA has built out and interconnected with two wind projects with an annual capacity of roughly 27 MW. In fact, GVEA sized its 25 MW Eva Creek wind project to maximize wind power on GVEA's current system through optimizing its most economic units for regulating wind power. Currently, GVEA's system does not utilize 100 percent of its existing wind power. 

As a general matter, GVEA does not need any new generation capacity to meet its members' long-term electrical needs. Integrating any significant new non-firm source of wind power into GVEA's current system will require GVEA to regulate the variability of the additional wind power through substantially increasing the operation of its less economically efficient units while, at the same time, substantially decreasing the operation of its more economically efficient units. Integrating any significant new source of wind power into GVEA's current system would also substantially increase the variability of electrical power causing GVEA's existing and older thermal units greater stress, higher maintenance costs, and increased risk to reliability as those units ramp up and down to regulate the increased variability due to the over-integration of wind power. Those units will not only be ramped up and down as a result of added wind power, but they will also need to be operated at a constant minimum level to avoid the near constant start-up and shut-down that would otherwise be necessary to regulate a substantial increase in highly variable wind power. 

Integrating any significant new source of wind power into GVEA's system will also increase the operation of GVEA's units in the serious non-attainment areas for regulated emissions within Fairbanks and North Pole. While GVEA's generation is not a significant source of emissions within these serious non-attainment areas, GVEA is concerned with any increase in regulated emissions within them. 

Mr. Mike Hubbard, a system modeling consultant retained by GVEA, performed a detailed analysis of the actual operational and financial impacts arising from integrating DWF's Project onto GVEA's system. Hubbard's Cost Report demonstrates that interconnection with and power purchases from DWF's Project would result in significantly increased costs to GVEA's members. 

In compliance with its obligations to DWF, Mr. Hubbard calculated the actual avoided costs from operating its system with and without DWF's Project. He then compared the different revenue requirements of each approach. The results of his actual avoided cost analysis indicate that integrating DWF's Project into GVEA's system results in significantly greater costs for GVEA's members than would otherwise be incurred if GVEA generated its own power. Specifically, he found that, if DWF's Project is interconnected to GVEA's system, GVEA's members will have to pay additional net fuel costs of $19.9 million annually in 2018, increasing to $82.7 million annually by 2037. Viewed differently, in 2018, if DWF's Project is interconnected with GVEA, the additional wind generated will save GVEA $0.105 per kWh, but the additional fuel necessary to regulate the additional wind will cost GVEA ($0. 727) per kWh, consequently, the total net actual avoided cost would be a negative ($0.622) per kWh. Thus, GVEA's members would have to pay significantly higher fuel costs to accommodate the over-integration of wind power on GVEA's system through DWF's Project. 

The results from Hubbard's Cost Report are driven by the operational circumstances of GVEA's existing system. More specifically, Hubbard's Cost Report demonstrates that, if interconnected, DWF's Project would add 13.5 MW of additional and highly variable, non-firm, wind power to GVEA's current system. He notes that in order to regulate such a large amount of additional and highly variable wind power, GVEA would have to operate its less economically efficient units much more and its more economically efficient units much less. As a result, adding 13.5 MW of additional wind power would require much greater regulation on GVEA's system than GVEA can efficiently provide with its current system. The result is that the costs of regulation of DWF's Project significantly exceed its benefits and would significantly increase costs to GVEA's members.

In reaching these conclusions, Mr. Hubbard worked closely with GVEA's generation and system experts. He used industry-standard modeling techniques to evaluate the actual costs of GVEA's system with and without DWF's Project. He utilized GVEA's QF-2 Tariff Sheet 120.4 "Method 2" approach which compared GVEA's revenue requirement with and without DWF's Project interconnected. GVEA's generation and system experts have carefully reviewed and confirmed Mr. Hubbard's approach and findings. 

Dr. Ken Rose, co-author of the PURPA Title II Compliance Manual, has reviewed GVEA's QF-2 Tariff and Mr. Hubbard's analysis and agrees that Mr. Hubbard's approach is an acceptable, and particularly well-suited, method for calculating GVEA's actual avoided costs (Dr. Rose's Opinion Letter). In fact, no other method for calculating avoided costs could better capture the overall cost impact from DWF's Project. Mr. Hubbard's approach simply calculates GVEA's revenue requirement both with and without DWF's Project. The difference between these two revenue requirements is GVEA's actual avoided (or incurred) costs with respect to DWF.

In this case, Hubbard's Cost Report demonstrates that the incorporation of DWF's Project into GVEA's system would leave GVEA with significantly greater incurred costs than avoided costs. The additional regulation capability necessary for GVEA to purchase variable wind power from DWF's Project will substantially increase GVEA's system costs over the next 20 years. In fact, even if GVEA purchases power at a zero tariff rate GVEA's members would pay an additional $19.9 million in fuel costs in 2018, $41.6 million in 2021, and $82. 7 million in 2037. These cost increases to GVEA's members would not be just and reasonable or in the public interest. 

Gvea Letter 3 15 2017

Download file (1.84 MB) pdf


MAR 15 2017
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